Voluntary agreements and community development as CSR in innovation strategies
Vivekananda Mukherjee & Shyama V. Ramani
#2011-016
The present paper examines how an innovating firm decides between two
forms of voluntary agreements (VA) in a context, where a
non-governmental organization (NGO) rather than a regulator watches over
citizens' interests. The innovation generates profit and consumer
surplus as well as environmental damage. Corporate social responsibility
(CSR) within the innovation process is considered in terms of a
redistribution of profit towards community development, with or without
additional abatement efforts via a VA. Bargaining between firm and NGO
yields the amount allocated to community development. The model
demonstrates that the firm's choice of VA hinges on the tradeoffs
between appropriating the full innovation profit and paying a higher
lump sum towards community development or sacrificing some of the
innovation profit by lowering innovation effort, but gaining in terms of
paying a lesser amount towards community development. CSR with abatement
is unlikely in the case of radical innovations. There is also a clear
divergence of interests between the firm, the NGO and the State for some
parameter configurations, which are duly identified.
Key words: Corporate social responsibility, voluntary agreements,
community development donations, innovation
JEL code: M14, O32, O33